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IN THE HIGH COURT OF KARNATAKA
B.V. Nagarathna, J.
Yashodhara Shroff – Appellant
Versus
Union of India – Respondent
Writ Petition Nos. 45742, 45743, 47145, 47146, 48347, 48364, 48365, 49062, 49124, 51121, 51122, 51408, 51714, 51715, 51716, 51765, 51766, 51767, 51768, 51769, 52350, 52351, 52720, 52721, 52904, 52905, 52906, 52911, 52952, 53237, 53238, 53604, 53605, 53606, 53607, 53608, 53609, 53707, 54219, 54220, 54260, 54261, 54262, 54263, 54764, 54765, 54766, 54830, 54831, 54832, 54833, 54834, 55323, 55324, 55358, 55359, 55623, 55702, 55942, 55949, 55950, 56098, 56099, 56178, 56179, 56180, 56364, 56374, 56393, 56394 of 2017 and 581, 603, 604, 613, 1872, 1958, 3132, 3273, 3274, 3275, 3350, 3351, 3840, 3841, 3842, 3849, 3957, 4669, 4741, 5464, 5465, 5639, 5640, 5813, 6853, 6854, 6875, 6876, 6961, 6962, 8036, 8205, 9050, 9051, 9052, 9531, 9786, 10113, 10114, 10115, 10116, 10187, 10188, 10752, 11324, 11509, 11652, 11654, 11656, 11657, 11829, 11865, 12061, 12062, 12159, 13075, 13205, 13206, 13263, 13303, 13304, 13305, 13306, 13307, 13326, 13327, 13531, 13756, 13773, 13784, 13785, 13786, 13787, 13788, 13789, 13790, 13791, 13792, 13835, 13853, 14464, 14465, 14466, 14468, 14828, 14829, 14830, 15616, 15617, 15686, 15797, 15841, 15938, 15939, 15940, 17149, 17242, 17243, 17328, 17329, 17330, 17372, 17373, 17374, 17375, 17376, 17427, 17428, 17429, 17430, 17456, 17933, 17934, 18384, 19712, 19713, 20451, 20452, 20453, 20454, 21153, 21999, 22000, 22001, 22002, 22003, 22004, 22005, 22006, 22007, 22008, 22010, 22011, 22122, 22123, 22124, 22125, 22483, 22484, 22485, 22486, 22491, 22492, 22494, 22495, 22499, 22500, 22501, 22512, 22513, 22515, 22516, 22517, 22706, 22800, 22801, 22819, 22820, 22821, 23517, 23524, 23610, 23611, 23612, 23613, 23614, 23615, 23616, 23617, 23618, 23619, 23620, 23621, 23622, 23623, 23624, 23682, 23728, 23894, 23905, 23906, 24083, 24084, 24085, 24086, 24087, 24088, 24163, 24164, 24343, 24344, 24345, 24346, 24976, 25036, 25194, 25203, 25206, 25298, 25635, 25637, 25683, 25684, 25706, 25707, 25927, 25928, 25929, 25930, 25931, 26060, 26061, 26089, 26090, 26624, 26625, 26851, 26852, 26991, 26992, 27297, 27298, 27420, 27421, 27459, 27460, 27461, 27548, 27549, 27564, 27598, 27599, 27600, 27601, 27756, 27779, 27780, 27876, 27877, 27890, 27891, 27892, 27893, 27926, 27927, 28185, 28487, 28554, 28620, 29165, 29233, 29425, 29593, 29594, 29595, 29596, 29597, 29857, 29962, 30070, 30732, 30733, 30734, 30800, 30995, 31035, 31172, 31511, 31512, 31513, 31575, 31576, 31733, 31734, 31947, 31948, 31992, 31994, 32065, 32066, 32067, 32068, 32069, 32070, 32071, 32347, 32348, 32615, 32881, 33080, 33081, 33933, 34002, 34186, 34832, 34844, 34845, 34930, 35101, 35321, 35330, 35332, 36522, 36613, 36624, 36625, 38408, 38495, 38722, 38913, 38914, 38952, 39347, 39348, 39349, 39814, 39836, 39975, 39976, 40760, 40817, 40936, 41215, 41217, 41535, 41536, 42805, 42806, 42807, 42808, 42814, 43039, 43198, 43394, 43851, 43859, 43860, 44147, 44148, 44521, 44522, 44729, 44730, 44839, 45594, 46208, 46210, 47796, 47819, 47820, 47821, 48232, 49012, 49989, 49990, 49991, 50103, 50244, 50245, 50443, 50678, 50679, 50809, 50810, 52055, 52071, 52293, 52294, 52295, 52460, 52610, 52611, 52612, 52766, 52820, 52821, 52822, 53208, 53209, 53210, 53442, 54337, 56001 of 2018
Decided On : 12-06-2019
Constitution Of india,1950 - Article 19(1)(g) - Corporations Act, 2001 - Section 165 - Bengal Finance Sales Tax Act, 1941 - Section 5(2) (a) - Companies (Amendment) Act, 2017 - Section 54 - Rule 27-A of Bengal Sales Tax Rules - Quash - Appointment and Qualification of Directors - Whether Section Act is ultra vires Articles Constitution being manifestly arbitrary or on the principle of proportionality - Whether Section in violation of principles of natural justice and hence ultra vires Article Constitution as it does not envisage any hearing prior to disqualification or post-disqualification - Whether Section Act has retrospective operation and therefore is unreasonable and/or arbitrary as per Article Constitution - Whether there has been any illegal exercise of power by the concerned respondent-authority publishing the List of Directors, including the names of petitioners as disqualified directors Act is ultra vires Constitution as being manifestly arbitrary - Whether proviso Act is ultra vires Constitution as being manifestly arbitrary - What order –Held, cases is about transparent corporate governance importance of which is not just in its form, but also of substance - Legislation can, to some extent impose accountability but substance of it must be ingrained in all persons in the corporate world - Court would, in state that every citizen in all walks of life must endeavour to bring in transparency and accountability in his/her work if our country India or Bharat is to endure petitioners as directors of public companies by taking into consideration the period prior to as well as subsequent thereto for the purpose of reckoning continuous period of three financial years - It is observed that even in respect of public companies having regard to the nature of consequences envisaged Section Act as compared to Section period prior and subsequent thereto could not have been considered for reckoning three continuous financial years for disqualifying directors of public companies petitioners herein (who may have also been granted interim orders by this Court) continue to hold office as directors in the defaulting company as well as all other companies - This is in consonance with the interpretation placed on the proviso and petitioners would not vacate office in all other companies in which they are directors as the proviso does not apply to the petitioners who were all disqualified prior amendment by way of an insertion of proviso, has only a prospective operation petitioners is based by taking into consideration any financial year "prior as well as subsequent thereto" while reckoning continuous period of three financial years irrespective of whether petitioners are directors of public companies or private companies such a disqualification being bad in law Writ Petitions are allowed and impugned List is quashed to that extent only National Company Law Tribunal (NCLT) Section Companies Act which provides for an appeal to be filed within a period of three years from of passing of the order dissolving company Section - Hence those Writ Petitions are dismissed reserving liberty to those petitioners who are aggrieved by the dissolution of the companies Section (Struck off companies) to approach NCLT if so advised – Petition disposed
JUDGMENT :
B.V. Nagarathna, J.
1. As common questions of fact and law arise in these writ petitions, they have been clubbed together, heard and disposed of by this common order.
I have heard the learned senior counsel and learned counsel for the petitioners and learned Additional Solicitor General of India and other counsel for Union of India and respondents, and perused the pleadings and statement of objections filed on behalf of the respondents.
2. The Petitioners herein were directors of either public companies or private companies or both and they are all aggrieved by their disqualification as directors as per the list issued by the respondents.
Part-2
Bird's eye view of the controversy:
3. In these writ petitions, some of the petitioners have assailed the vires of Section 164(2)(a) of the Companies Act, 2013 (hereinafter referred to as "the Act" for the sake of brevity) as well as Section 54 of the Companies (Amendment) Act, 2017 (hereinafter referred to as "the Amendment Act, 2017") by which a proviso has been inserted to clause (a) of sub-section (1) of Section 167 of the Act as well as Section 167(1)(a) itself. In all these writ petitions, the List published by the respondent-authority (Ministry of Corporate Affairs) to the effect that the petitioners have been disqualified from being directors of their respective companies for the respective five year period (mostly from 01.11.2016 to 30.10.2017) is assailed. As a result, they are faced with the consequences as stipulated under Section 164(2) and Section 167(1)(a) of the Act, particularly, its proviso as inserted by the Amendment Act, 2017.
4. The vires of Section 164(2) of the Act is assailed on the touch-stone of Articles 14 and/or 19(1)(g) of the Constitution of India, as well as being in violation of the principles of natural justice. Section 167(1)(a) and proviso to Section 167(1)(a) of the Act are challenged as being in violation of Article 14 and/or Article 19(1)(g) of the Constitution. Further, the petitioners have contended that there has been an arbitrary exercise of power by the concerned respondent authority in disqualifying the petitioners as directors of the respective companies by giving a retrospective operation to the aforesaid provisions of the Act.
Part-3
Factual matrix:
5. Since the main thrust of the controversy in these cases is in the realm of constitutionality of the aforementioned provisions and on interpretation of statute, it is unnecessary to go into the factual aspects of each of the cases except where the same is necessary to advert to.
6. For the sake of convenience, the details relevant for consideration of these cases are extracted from the pleadings and are mentioned in the following table. The names of the companies which are shown in bold are struck off companies under Section 248 of the Act. The names of the companies which have not complied with Section 164(2)(a) of the Act are also mentioned.
7. On perusal of the aforesaid table, it could be gathered that the petitioners are directors either in public companies or private companies, or both and the period of their disqualification have also been noted. They are aggrieved by they being disqualified on account of non-compliance with the provisions of Section 164(2)(a) of the Act and also the fact that during the pendency of their disqualification and during the pendency of most of these writ petitions, proviso to Section 167(1)(a) of the Act has been inserted. As a result of which, they have to vacate their office as director in all other companies where they are functioning as directors even though there is no default under Section 164(2) of the Act by the other companies.
Part-4
Legal frame work:
8. The relevant provisions of the Companies Act, 1956 (hereinafter referred to as "1956 Act" for the sake of convenience) and "the Act" are extracted as under:
274. Disqualifications of directors:-
(1) A person shall not be capable of being appointed director of a company,
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